The exciting news this week was that the U.S. economy is not actually in crisis. ***Our insatiable thirst for oil and dependence on other countries to supply us with black gold has presented us with outstanding investment opportunities during this energy crisis. ***At times like these, we wonder what the US government would do for a budget like the Chinese. *** The mob lined up to hurl a few more stones at Fannie Mae (FNM) and Freddie Mac (FRE) this week.
Here are some of your top stories for this week:

POLITICS & ECONOMICS

The exciting news this week was that the U.S. economy is not actually in crisis. That’s right, it turns out the economy grew a healthy 3.3% y-o-y in the second quarter (not 1.9%, as previously estimated). Strong export growth and private inventories were behind the acceleration, said the Commerce Department.

But before we get ahead of ourselves, Dan Amoss warns us that GDP data isn’t always a good indicator of economic progress.

Besides, Chuck Butler says this outturn is just a ‘blip on the recession chart’. Firstly, the desperate government resorted to handing out checks to stimulate consumption for a month or two.

Then there was the weak dollar making America’s exports cheaper for most of the world. Between April and June, the US dollar index hovered in a range of 71 to 74, barely above its record low of 70.7 set in March. Since then, the index has spiked around 6.5% to reach 77.1 at the close of this week.

Without these twin influences going forward, Charles says growth will be ‘sluggish to nonexistent’. Sure enough, consumer spending stagnated in July, as inflation reached the highest rate for 17 years. Ouch.

Still, U.S. stocks had a day in the sun, as the market decided to take the GDP data at face value. Too bad both the S&P 500 and Dow Jones are down over 12% since the year began.

Of course, it won’t be long until the U.S. economy has a new captain to steer it through these murky waters.

The Republican Party will have its turn next week, but it was the Democrats that threw their party first. The convention was staged in Denver, and Senator Barack Obama officially became the first black presidential candidate. His acceptance speech was a stadium spectacle, and gave him an eight-point lead over rival John McCain in Gallup’s daily poll.

But what will really matter in this year’s election are the candidates’ economic policies. In an effort to shed the “tax and spend” tag, the Obama campaign is focusing on proposed tax relief for America’s middle class. But Martin Hutchinson says tax hikes are a much better alternative to a budget deficit that spirals out of control. Dan Amoss says spending huge sums of money to rescue the economy will just make matters worse going forward.

No matter what the captain does, some icebergs just can’t be avoided.

OIL & ENERGY

Our insatiable thirst for oil and dependence on other countries to supply us with black gold has presented us with great investment opportunities during the energy crisis.

Democratic Presidential Candidate Barack Obama tells us how he plans to invest in the green collar job movement and focus on wind and alternative energy. Yes, this will create more jobs here in the USA but does he realize that the parts needed for these monsters are made in BRIC nations? Perhaps not, but a well-informed investor could see the opportunity in this while OPEC and Russia tremble at the thought of the USA not depending on them in the near future! See what Byron King has to say here.

And speaking of alternative energy, have you ever stood next to just the base of one of the new model windmills that are going up right now in the Northeastern US? The bases and parts alone occupy so much space you need a lot the size of two football fields just to store the parts.

Andrew Gordon of Investors Daily Edge has his eye on emerging market countries like China and Russia for nuclear energy alternatives. He is bearish on oil majors and is sticking with smaller plays like this oil company from South Africa, called Sasol (NYSE:SSL).

EMERGING MARKETS

At times like these, we wonder what the US government would do for a budget like the Chinese. The spectacular opening ceremony to the Beijing Olympics is said to cost somewhere in the region of $300million. Global media quotes $40 billion as the total cost of the games.

Of course, math isn’t an exact science in China. But the Shanghai Stock Exchange has lost exactly 54.7% of its value in 2008 so far. It seems even the world’s fastest growing large economy is not immune to the global correction, prompting the government to draft a $58 billion economic stimulus package.

Is China a bargain yet? Ian Davis says Chinese stocks are not a screaming buy yet, but will be if the price-to-earnings ratio sinks to 12 (it’s currently as 16). Cris Sholto Heaton says investors should stay clear of exporting firms, which will suffer from a fall in demand from the US and EU. But, he thinks infrastructure companies are well protected from an external slump, and will continue to grow rapidly.

Jim Rogers has no doubts over China’s profit potential. “I have never sold any of my Chinese companies,” he told Money Morning in an exclusive interview. “You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% - so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.”

Following on from this, William Patalon III gives us six convincing reasons to invest in the Dragon economy here.

US STOCKS

The mob lined up to hurl a few more stones at Fannie Mae (FNM) and Freddie Mac (FRE) this week.

Warren Buffett declared “the game was over” for the troubled mortgage financiers. Former IMF-chief Kenneth Rogoff said they should have been closed down 10 years ago. Ratings agency Moody’s slashed its credit scores for both, citing the difficulties they would have in raising new capital.

It is the shareholders that are feeling the sting of these blows. As the trading week closed, Fannie’s stock was down 37%. Freddie had slumped 52%. “Mr. Market has called Henry Paulson’s bluff” says Dan Denning, “…it knows that without direct nationalisation, these government sponsored enterprises won’t last the month“.

So the government is preparing the life support machine. It certainly can’t allow these two giants to die. To do so would be “catastrophic” for the global financial system, according to Yu Yongding, former advisor to China’s Central Bank. Eric Roseman thinks US Treasury bond yields could collapse if the Fed doesn’t intervene soon.

But if something is “too big to fail”, how much does it cost to keep alive? Byron King says this new era of government bailouts will divert hundreds of billions of dollars away from vital infrastructure projects to covering Wall Street’s bad investments.

And who will foot the bill? Why, the humble taxpayer of course…

We hope you have a great Labor Day Weekend!

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Until next weekend,
Contrarian Profits Staff

Marc and Julie